[From The Vault] Cartoon of the Day: In Case You Didn't Know

Our inimitable, in-house cartoonist Bob Rich is on a much-deserved summer vacation. While he kicks back and relaxes, we're going into the Hedgeye Vault and highlighting some of his best work. On that note, ahead of tomorrow's Fed policy announcement, we bring you another audience favorite.

Capital Brief: Dems Battle Dumpster Fires In Philly

Takeaway:Bridges Over Troubled Waters; From Russia With Love; Barnberner

Editor's Note:Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please emailsales@hedgeye.com.

“He who knows best knows how little he knows.”

-Thomas Jefferson

BRIDGES OVER TROUBLED WATERS

Despite the “united together” theme, day one at the Democratic National Convention got off to a very rough start, but ended on high note as Democrats moved swiftly to head off dissention in their ranks before it subsumed their four-day brotherly lovefest. After much gloating and finger wagging at Republican disarray last week, Democrats began their convention with the news of a Trump bump in the polls, a Russian email scandal and the DNC Chair’s subsequent resignation.

Though the protests that have ushered in the week are larger and more vocal than those in Cleveland, they were more than offset by powerful speeches by First Lady Michelle Obama, Senator Cory Booker, progressive icon Elizabeth Warren - and Bernie Sanders doubling down on his endorsement of Hillary Clinton. We expect the healing process to continue with speeches by President Bill Clinton tonight and President Obama on Wednesday evening.

FROM RUSSIA WITH LOVE

Emails have been a recurring nightmare for Democrats all year long - this time with DNC Chair Debbie Wasserman Schultz in a starring role resigning under pressure after thousands of internal emails revealing a coordinated effort to stop Bernie Sanders were uncovered and released by suspected Russian hackers, creating an uproar within the party and initiating an FBI probe to boot.

She’s been a scapegoat for Democrats on a number of fronts, even though her supporters point to the good she’s accomplished for the party – including raising record sums of money and working tirelessly in FL and across the country on behalf of Obama’s re-elect. Team Clinton has been swift and authoritative in trying to turn the page, but the outrage felt by Sander’s most fervent supporters won’t go away overnight and our friends in the media likely won’t let it.

BARNBERNER

Fissures in the Democratic ranks continued to show as Sanders supporters were welcomed to Philly by a new dumpster fire with the DNC email expose and revelations of manipulation by party officials, the selection of Senator Tim Kaine and residual unease with Clinton. Proving he’s no Ted Cruz, Sanders energized the delegates by delivering a barnburner of a speech on behalf of his ideals and Hillary Clinton.

But we think there’s more work to be done and expect Sanders to make more appearances this week and throughout the campaign this fall. Featuring progressive speakers like Sanders, Warren, and Michelle Obama was a prescient kickoff strategy and we think that it will quell most - but not all - of the anger that still burns on the far left.

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This indispensable trading tool is based on a risk management signaling process Hedgeye CEO Keith McCullough developed during his years as a hedge fund manager and continues to refine. Nearly every trading day, you’ll receive Keith’s latest signals - buy, sell, short or cover.

Socialism, Pension Funds & Italian Bank BAILOUTs

According to Reuters, Italian pension funds have agreed to invest in the country's bad bank loans at the insistence of the government. The combined bailout program will be called Atlante 2, a follow up to a previous bailout fund that has already "used more than half of its initial 4.25 billion euro endowment to take over two failing regional banks." Sources familiar with the matter say the government asked for €500 million, as investors have become increasingly concerned about troubled loans totalling €360 billion.

OUR TAKE:"Socializing market risk continues," Hedgeye CEO Keith McCullough wrote earlier today. Italy's stock market crash accelerated this morning, at one point the FTSE MIB was down as much as -1.8% today before ending the day at essentially flat. Still the MIB is down -32% from 2015 top, as the ongoing big bank "rescue" freaks people out.

In other pension fund news...

"Long-term returns for U.S. public pensions are expected to drop to the lowest levels ever recorded, portending deeper pain for states and cities as a $1 trillion funding gap widens," the Wall Street Journal writes. Pension funds are expected to put up twenty-year annualized returns of 7.47%, raising concerns about whether states and cities can continue to afford pension obligations.

Freak out & Fire Up The Printing Presses!

"Bank of England policy maker Martin Weale said he’s begun to favor immediate stimulus for the U.K. economy... chang[ing] his mind on the timing of stimulus after purchasing managers’ indexes released July 22 were a lot worse than he had thought," Bloomberg writes.

OUR TAKE:Central Planning Orthodoxy = Print, Print, Print.

Super Abe To the rescue?

"Japan looks to inject 6 trillion yen ($56.7 billion) in direct fiscal outlays into the economy over the next few years, double the amount initially planned," the Nikkei newspaper reports. Meanwhile, the Wall Street Journal writes that Japan's Prime Minister Shinzo Abe is increasingly pressuring BOJ head Haruhiko Kuroda to "coordinate efforts by expanding the central bank’s monetary easing."

Other stories worth mentioning:

FT - "Anheuser-Busch InBev has unilaterally raised its offer for rival SABMiller to £79bn to quash an investor rebellion that threatened to disrupt the third-biggest deal in corporate history."

Nasdaq - "BP posted its third straight quarterly loss as the British oil giant reels from a two-year crude-price slump and remains haunted by the 2010 Gulf of Mexico spill."

MarketWatch - "Royal Bank of Scotland and Natwest could become the first U.K. banks to charge customers to hold their cash if the Bank of England yanks benchmark interest rates below zero in wake of the Brexit vote."

The Long-Term Twitter Story Isn’t Good

In this excerpt from The Macro Show, Hedgeye analyst Hesham Shaaban goes granular on the major headwinds facing Twitter. “Over the last two plus years, management has inflicted so much damage on its model that we really can’t see a way to fix it,” says Shaaban. “If Twitter can figure this out, there’s a ton of upside, given how badly the stock has been dinged throughout its public history. We just can’t see it—not yet at least.”

The first chart shows the last three cycles and the length of time jobless claims dropped below 330k before recession hit. The numbers are as follows: 24, 45, and 31 months (average: 33 months). With the current cycle in its 29th month below that level, we are

5 months past the minimum

4 months shy of the 33-month average

16 months from the max

Chart #1

In the last cycle, the bottoming in jobless claims preceded a massive equity selloff.

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